Group’s Businesses

The Osaka Gas Group to date has drawn on its diverse and abundant business operations, human resources and technologies, nurtured by more than a hundred years of the gas business, to enrich the lifestyles of its customers and contribute to the development of industry. Currently, Osaka Gas is vigorously working to evolve, by the year 2020, into a global energy and environmental businesses group, by implementing the Company’s long-term management vision and medium-term business plans, “Field of Dreams 2020.” To achieve this goal, Osaka Gas is in the process of expanding its business domain and establishing a strong business structure in three piv- otal fields: domestic energy businesses, international energy businesses along the energy value chain, and the environment and non-energy businesses.

Osaka Gas seeks to deepen its existing businesses and widen involving resource development projects of upstream, the scope of new business, through business expansion in trading operations leveraging LNG terminals, and pipelines, the three pivotal fields, to propel entire Osaka Gas Group gas supply and electricity generation of mid- and businesses forward. downstream. In the domestic energy businesses, we provide high- In environment and non-energy businesses, we will bolster quality products, services and safety, as well as added value and expand our existing strengths in real estate, IT and advanced in the form of energy conservation and security in supplying materials, while cultivating environmental businesses. multiple forms of energy including electricity, LPG and renew- Pushing forward with these initiatives, by the year 2020, ables. We will also take steps to further expand our services we aim to achieve ROA of 4% and ROE of 9% on a consoli- and multi-energy business by achieving greater depth in our dated basis, respectively, by expanding the international gas business in the Kansai region—our core business area. businesses, and the environment and non-energy busi- In the international energy business, we will continue nesses to collectively match the sales scale of our domestic expanding operations globally to achieve a mix of synergies energy businesses.

International Energy Businesses Environment and Along Energy Value Chain Domestic Energy Businesses Non-Energy Businesses Expansion by using Gas/energy business in Kansai Greater scale and scope of ­know-how and skills region with greater scale and strong environment/ Results scope non-energy businesses 2007–2009 Av./pa ROA: 3.0% Ordinary profit: approx. ¥76 billion ROE: 6.6%

Scale comparison in ratio (present) 1 5 2

Greater Greater depth depth Greater Greater breadth breadth

Targets 2020 ROA: approx. 4% ROE: approx. 9%

Scale comparison in ratio (targets) 1 2 1

Domestic gas/ Exploration and energy business Production Quality products/services/ Transport Natural gas safety business Real estate/ LNG outside Energy Safety/ property, IT, terminals services Services advanced materials Power Renewables Mid- and downstream (pipelines, LDC*1, IPP*2, LPG Environment marketing, renewables) business

*1 LDC: Local Distribution Company *2 Independent Power Producer

24 OSAKA GAS Annual Report 2011 Business Directions

Domestic Energy Advance energy systems and services contributing to the high level of comfort of customers and environmental friendliness. Businesses Residential sector PP2622

Aim for growth as an energy services provider by supplying Commercial multi-energy solutions centered on energy conservation tech- and nologies. Seek business model evolution in utility management, industrial energy bank, safety and other high-quality, high-value-added Gas sectors business services.

Procure stable and price-competitive LNG to build a natural gas Stable natural gas supply supply infrastructure for the stable supply of gas to customers.

Ensuring Enhance higher safety levels in gas supply and other gas appli- higher level ances through proactive measures. of safety

Build the power business at home and abroad as a second core Power Power business after natural gas. Develop the power business further business business through new capacity development and by restructuring the generation portfolio.

International Energy Participate in equity up to about 15% of LNG supply and seek Upstream/ LNG trading opportunities through equity-lifting.* Businesses Along energy trading the Energy Value Chain P34 Seek global opportunities for achieving stable revenue flow Mid- and using human resources and know-how of the Group. downstream Osaka Gas Group’s Businesses

Environment and Broaden existing businesses in real estate, IT, and advanced Non-Energy Businesses Environment and materials fields. non-energy Develop new businesses in environment-related fields utilizing P38 businesses own technologies.

* Ownership of LNG as per equity holding for own off-take and marketing

Management Targets Investment FY2010/3–FY2021/3

2010/3 (Results) 2014/3 (Estimate) 2021/3 (Estimate)

Operating investments for solidifying three ¥1,187.1 billion ¥1,600 billion ¥2,000 billion ¥1.5 trillion revenues business fields

Total assets ¥1,437.2 billion ¥1,850 billion ¥2,100 billion Upgrading existing businesses: ¥700 billion [¥300 billion*] Environment and Domestic Energy Businesses Non-energy Businesses ROA 3.1% Approx. 3.5% Approx. 4.0% ¥660 billion ¥40 billion

Investments for incubation and expansion: ROE 6.9% Approx. 8.0% Approx. 9.0% ¥800 billion [¥400 billion*] International Energy Businesses Environment and along Energy Value Chain Non-Energy Businesses Payout ratio of 30% or more on a consolidated ¥350 billion ¥270 billion Return to basis, excluding temporary factors affecting the shareholders profit situation Domestic Energy Businesses ¥180 billion

Maintain finan- Shareholders’ equity ratio of 40% or more; debt to * Of a total ¥1.5 trillion, the proportion for investment in five years from the fiscal cial soundness equity ratio of approximately one year ended March 2010 through the fiscal year ending March 2014

OSAKA GAS Annual Report 2011 25 Osaka Gas Group’s Businesses

Domestic Energy Businesses

The domestic energy businesses comprise the gas business, the electric power business, the LPG business and the industrial gas business, and the broad-area energy business. The Osaka Gas Group is committed to developing a multi-energy business that contributes to the convenient and enriched lifestyles of its customers. We continue to improve our stable energy supply, safety, and services.

Operating Revenues Segment Income

(Billions of yen) (Billions of yen) Residential 1,200 80 1,054.6 72.2 Gas Sales 968.9 67.5 1,000 174.7 14.8 143.4 60 Gas 25.6 800

600 40 825.5 879.8 57.3 Commercial and Industrial 400 41.9 Gas Sales Domestic Energy Electric Power 20 Businesses 200

0 10.3 11.3 0 10.3 11.3

Gas LPG, electricity and other energies LPG and Note: Segment income = Operating income + equity in net income of affiliates Industrial Gas

Broad-area Energy Business

Characteristics of the Japanese Gas Business Comparison of Gas Business: and Western Nations There are 211 gas companies in Gas Sales Volume Market Share Japan Western nations Japan, but the majority of gas sales in Japan (FY2010) Domestically produced The majority or procured from by volume is accounted for by a Procurement imported as LNG neighboring countries few major companies. Japan relies via pipelines on imported LNG for most of the 27% Well-developed Pipelines that link to pipeline network 35% Infrastructure major gas markets gas supplied in the country. It was that links gas supply are under-developed first imported in 1969. In contrast to 33,837 and markets 3 many other countries, Japan does 2% million m Strong inter-fuel Competition exists Competitive competition only between not have any international gas 11% environment New players partici- suppliers of the same pate in the market kinds of energy pipelines or gas pipelines inter- Gas linked nationally. Furthermore, the Technology Mostly Osaka Gas Mostly gas suppliers development manufacturers gas business is operated in an inte- Gas Osaka Gas Saibu Gas grated manner — from importa- Other 24% Responsible for Not responsible for Security and consumers’ assets customers’ assets tion, storage, production and sales. 3 3 Note: In this graph 1 m = 41.8605 MJ/ m . safety (even house gas pipes (only up to gas Source: Japan Gas Association “Gas Sales Volumes” and gas appliances) meter)

26 OSAKA GAS Annual Report 2011 The Gas Toyooka Energy Business Area Fukui Pref. Gifu Pref. Tango Gas

Osadano Gas Center Aichi Pref. Kinki Trunk Line: Kyoto Pref. Shiga Line Mie-Shiga Line Otsu Municipal Gas Sasayama-Toshi Gas Shiga Pref. Hyogo Pref.

Itami Sangyo Kinki Trunk Line: Yokkaichi Thermal Okayama Pref. No. 2 West Line Power Plant of Kinki Trunk Line: No. 3 West Line Kinki Trunk Line: Himeji-Okayama Line Keiji Line Nagoya Power Plant of Kinki Trunk Line: Mie Pref. Nakayama Nagoya Joint No. 2 West Line Power Generation Himeji LNG Kinki Trunk Line: Amagasaki Line Terminal Kinki Trunk Line: No. 1 East Line Osaka Nara Pref. Torishima Energy Kinki Trunk Line: Pref. Center of Gas Funamachi Power Plant Bay Line Nabari Kintetsu Gas of Nakayama Joint and Power Kinki Trunk Line: Power Generation No. 2 East Line Sakurai Gas Semboku LNG Terminal I Semboku LNG Terminal II Trunk line (installed) Kawachinagano Gas Daiwa Gas Trunk line (under construction) Sumoto Gas Gojo Gas Major pipeline (installed) Headquarters, office, branch, etc. Wakayama Pref. Research institute LNG Terminal plant LNG Terminal + Power plant

Hirogawa Myojin-yama Wind Power Plant Osaka Gas Group’s Businesses Power plant Yura Wind Power Plant Service area of the Osaka Gas Group Service area of gas companies outside the Osaka Gas Group in the Kansai region Shingu Gas

■ Deregulation of the Gas Industry in Japan ■ Characteristics of the Gas Rate System

Ever since partial retail liberalization was adopted in 1995, The price of gas is determined on the basis of the fuel deregulation has progressed by gradually expanding the cost adjustment mechanism by reflecting the external sphere of retail in the gas business. factors of foreign exchange rates and crude oil prices. Due to this system, the impact of exchange rate and % of national Scope of sales open for Features Customers liberalization crude oil price fluctuations on Company performance is competition Introduction of third-party neutral over the medium to long term. However, over the 2 million m3 or 1995 47% access to pipelines and fuel more per year Large factories short term, performance is affected by changes in these cost adjustment system and large Third-party access to pipelines commercial factors because of the time lag between when fuel costs 1999/ 1 million m3 or 52% made mandatory (four major facilities 2000 more per year change and when they are incorporated into gas rates. companies only) Third-party access to Medium-sized 500,000 m3 or 2004 55% pipelines made fully factories, city more per year mandatory hotels, etc. The Fuel Cost Adjustment System

Small factories, 2005 — — — Large 1-month hospitals, customers Average fuel cost Reflected in gas rates no-frills hotels, time lag 100,000 m3 or supermarkets, Small 2-month 2007 62% — Average fuel cost Reflected in more per year etc. customers time lag gas rates Jan. Feb. Mar. Apr. May Jun. Jul. Sources: Denki Shimbun, “Description of Electric Power Liberalization and New Systems,” and Market Monitoring Subcommittee, Urban Thermal Energy Subcommittee of the 2009 Advisory Committee on a and Natural Resources

OSAKA GAS Annual Report 2011 27 Osaka Gas Group’s Businesses

Domestic Energy Businesses

Gas Business Gas Business Residential Gas Sales

Business Characteristics and Strengths Business Characteristics and Strengths The gas business is the core business of the Osaka Gas Group Osaka Gas serves its customers with safe and reliable gas serving users in the Kansai region, Japan’s second-largest supplies, offering a variety of gas appliances to promote their urban area. Our businesses and services involve producing gas usage. The Company works together with manufacturers and supplying natural gas, installing in-house gas pipes, and to develop new gas appliances to meet customers’ needs, selling gas appliances. Through technological development, and introduce ways to enrich their lifestyles with the prod- marketing and the formation of new services, the Group has ucts. We are also committed to swiftly responding to our penetrated a wide-ranging cross section of household, com- customers’ calls for repair and maintenance of gas equip- mercial, public and medical-use, and industrial customers to ment. Against the backdrop of decreased population, meet their diverse energy needs. The Group is also working increased smaller families, and intensified competition with toward the stable procurement of energy resources and all-electric home energy systems in the Kansai region, we are ensuring the soundness of gas infrastructure including the striving to expand gas demand in households through promo- pipeline to deliver gas safely and reliably around the clock. tion and technological improvement of our residential gas engine cogeneration system “ECOWILL” and residential fuel Overview of Gas Sales cell cogeneration system “ENE-FARM.” Capitalizing on the In the fiscal year ended March 31, 2011, gas sales volume of the environment-friendliness of natural gas, these appliances are Company was 8,528 million m3*1, representing about a quarter designed to achieve higher energy efficiency to contribute to of nationwide gas sales. Meanwhile, the number of the Com- realizing a low-carbon society. The cogeneration systems will pany’s customers reached 7.01 million.*2 Looking at the break- enhance energy security as distributed power generation with down of gas use by sales volume, Osaka Gas sold 4,141 million these systems prevails. m3 to its industrial customers, accounting for about half of the total sales volume, and 2,275 million m3 to its residential custom- Fiscal 2011 Overview and Initiatives ers, about one-quarter of the total. Commercial segment sales Residential gas sales volume increased by 1.4% over the volume recorded 968 million m3, and public and medical-use previous year, to 2,275 million m3 in the fiscal year ended sales totaled approximately 655 million m3. On a wholesale March 31, 2011, as both atmospheric and water tempera- basis, 488 million m3 of gas was sold to other gas businesses. tures during the winter’s peak demand season were lower

*1 Total gas sales volume of the Company’s other consolidated subsidiaries was than average. 32 million m3. *2 The total number of gas sales customers of the Company’s other consoli- dated subsidiaries was roughly 29,000.

Gas Sales Volumes by Use (Non-consolidated) Residential Cogeneration System Units Sold (FY2011) (Cumulative Total) (Million m3) (Units) (Units) 488 80,000 8,000 70,590 64,368 2,275 56,423 60,000 6,000 8,528 million m3 45,722 3,711 4,141 40,000 33,840 4,000 968

655 20,000 1,386 2,000

0 07.3 08.3 09.3 10.3 11.3 0 Residential Public and medical Wholesale Commercial Industrial ECOWILL (left scale) ENE-FARM (right scale)

28 OSAKA GAS Annual Report 2011 Cumulative Sales of Residential Fuel Cell Cogen- review, surpassing the previous record by 16,000 units. eration System “ENE-FARM” Top 3,700 Units Osaka Gas will continue its efforts to develop and promote “ENE-FARM” is an efficient gas-fired distributed power these safe and convenient kitchen stoves. generation system for households. The system generates electricity using hydrogen reformed from natural gas, and Future Business Development efficiently uses recovered heat for hot water supply and Providing Uniformly High Quality Services space heating. It operates on less energy and emits much Seeking continued support from customers, Osaka Gas con- less CO2 compared with conventional power generation. tinues to engage in grass roots marketing and developing Running on gas, it reduces electricity bills by the amount of new services. To achieve higher customer satisfaction, we electricity it generates. The system has been well-received keep improving our customer service by significantly reducing by our customers for its environment-friendliness and better response time in answering our customers’ calls and sending economy. In the fiscal year ended March 31, 2011, 2,325 our repair teams to our customers. Our foremost customer units were sold, exceeding the initial target by approxi- service principle is to provide uniformly high quality services mately 36%, with cumulative total sales topping 3,700 units across all points of customer contact. since its launch in 2009. For even greater reductions of CO2 emissions, Osaka Gas promotes “hybrid power generation,” a combination of “ENE-FARM” or “ECOWILL” with a photo- Topics voltaic power generator. The hybrid system has been installed Osaka Gas Group’s Businesses “Raku Toku” Lease at more than 2,800 households to date. Providing our customers with easier access to our newest Si For details of hybrid power generation, please refer to page 22. Sensor kitchen stoves and ovens, we introduced a “Raku Toku” (easy and economical) lease program in March 2010. In this program, Osaka Gas leases these appliances at afford- Developing and Selling Gas Appliances in the Pur- able rates starting from ¥1,390 a month for a no-oven-built-in­ suit of Efficiency, Comfort, Convenience and Safety unit and from ¥2,050 a month for an oven-built-in unit. The For the residential sector, Osaka Gas develops and markets program makes Si Sensor kitchen stoves accessible to many customers, without paying an upfront lump sum to purchase gas appliances to contribute to energy conservation and the unit to enjoy our latest models. We have received highly reduced CO2 emissions. One good example is “ECO-JOZU,” favorable responses to this program from our customers who a high-efficiency gas residential water heater that re-uses can enjoy the latest safe and convenient gas stoves. During combustion gases previous models released into the atmo- the fiscal year under review, we had more than 5,700 lease applications, highlighting the increased use of Si Sensor sphere. In the fiscal year ended March 31, 2011, 69,000 kitchen stoves. Coverage of the “Raku Toku” lease program units were sold, with cumulative total sales reaching will be extended to water and space heaters, including the 310,000 units. high-efficiency “ECO-JOZU” models, and the “KAWACK” and “MIST KAWACK” bathroom heater/dryer units. Gas utilities in Japan have been involved in a campaign to eliminate fire outbreaks from kitchen stoves since April 2008. As part of this campaign, gas companies have promoted the widespread use of Si Sensor kitchen stoves. Such stoves are equipped with a safety device on all burners to prevent flame failure and overheating. Thanks in part to this campaign, over 10 million Si Sensor stoves were sold nationwide as of December 2010, of which 443,000 units were Osaka Gas products. The Company’s sales of the Si Sensor kitchen stoves reached a record 71,000 units in the fiscal year under

OSAKA GAS Annual Report 2011 29 Osaka Gas Group’s Businesses

Domestic Energy Businesses

Gas Business Commercial and Industrial Gas Sales

Business Characteristics and Strengths Fiscal 2011 Overview and Initiatives In the Group’s business-use gas operations for the indus- In the fiscal year ended March 31, 2011, industrial gas sales trial, commercial, public and medical-use sectors, we volume increased by 6.8% over the previous year to 4,141 encourage customers to continue using gas by supplying million m3 as capacity utilization among our customers rose them with appliances and services that meet their needs. in step with a gradual recovery in the economy. Sales vol- We also work to attract new customers mainly through umes in commercial, public and medical use increased by demonstrating the environment-friendliness of natural gas 5.2% over the previous year, to 1,624 million m3, as gas and energy-efficient engineering. Our activities in this domain demand associated with air conditioning rose during the focus on promoting natural gas and its advanced utilization summer months. through marketing various gas appliances such as gas cogeneration systems, gas air conditioning systems and gas Boosting Switching to Natural Gas kitchens, featuring higher safety, convenience, and energy Osaka Gas promotes natural gas as a critical energy source efficiency as well as energy security. Osaka Gas strives to for thermal applications in the industrial sector. During the improve the user-friendliness and economy of natural gas fiscal year under review, we obtained a number of new cus- for its customers through its efforts to expand businesses of tomers with large heat demand through our campaign of providing broad energy services, going beyond energy supply. switching to natural gas for fueling their industrial furnaces Our expansion efforts include managing water treatment sys- and boilers. In particular last year, Osaka Gas launched full- tems, lighting facility energy conservation, financing for scale LNG sales activities targeting commercial and indus- installing gas equipment, and IT monitoring systems. trial customers beyond the reach of its gas pipelines.

In Pursuit of Gas Convenience In the effort to spread the use of gas, Osaka Gas develops and markets a wide variety of gas appliances that meet custom- Topics ers’ demands for functionality, economic efficiency, and envi- ronment-friendliness. One of our flagship models is the Super-Efficient Modular Air Conditioner System for Buildings “GHP XAIR” Launched gas-engine heat pump air conditioner “High Power EXCEL” In April 2011, Osaka Gas launched “GHP XAIR,” a super-­ (GHP) for commercial and industrial gas applications. The efficient modular air conditioning system for small- and medium-sized commercial buildings. The system is equipped with a super-efficient gas engine heat pump, High Power EXCEL Units Sold (Cumulative Total) which achieves higher energy conservation than any other models in the country. It was developed by Osaka Gas (Units) jointly with Aisin Seiki Co., Ltd., Sanyo Electric Co., Ltd. and 3,500 3,037 Yanmar Energy System Co., Ltd. In comparison to conven- 3,000 tional models, the new system can reduce primary energy 2,558 consumption up to 19% a year and reduce 2,500

CO2 by as much as 20%. Osaka Gas 2,000 1,706 plans to promote the system to cus- 1,500 tomers for a wide range of applica- 1,057 tions including office buildings, 1,000 commercial facilities, schools, hos- 500 249 pitals and factories. 0 07.3 08.3 09.3 10.3 11.3

[GHP XAIR]

30 OSAKA GAS Annual Report 2011 unit incorporates a gas-powered air-conditioning system with locations. In addition, Osaka Gas is engaged in engineer- an electricity generator. “High Power EXCEL” uses spare ing and consulting services in water treatment systems engine capacity to generate electricity during air-conditioner­ and power conservation in lighting. As an Energy Service operation, supplying power within the premises and signifi- Provider, Osaka Gas continues its efforts to expand the cantly reducing electrical consumption. In the fiscal year ended range of unique services. March 31, 2011, 479 units were sold, with cumulative total sales reaching 3,037 units. The number of customers install- Future Business Development ing this system has increased steadily. We also expanded our Further Evolution as an Energy Service Provider “Suzuchu” lineup of commercial kitchen appliances to over The Group plans to tap renewable energies by developing 300 models while launching an aggressive PR campaign to new air-conditioning systems using photovoltaic generation raise product visibility. and solar heating and highly efficient methane fermentation technologies that improve the absorption of biogases from Business Expansion as an Energy Service Provider sewage sludge and garbage. We also differentiate ourselves Going forward, “Energy Services” for comprehensively and improve competitiveness by offering higher value- managing a customer’s energy usage will become a core added one-stop services. Furthermore, we will collaborate earnings driver for the commercial and industrial domain. with other gas providers in the region to expand the service These services will not only involve gas supplies, but also area to grow our business. the finance, installation, and maintenance of a customer’s Osaka Gas Group’s Businesses plant and equipment. In the year under review, the cumu- Penetrating and Expanding the Commercial and lative number of contracts on one such service, “Eco Industrial Market Wave,” grew to 862 accounts, and Osaka Gas increased To further penetrate the market of commercial and indus- its lineup of new products and schemes. In addition, Osaka trial customers with heat demand, we plan to expand our Gas markets “Eneflex,” a remote system via the internet sales channels by drawing upon our sales network of agents for monitoring energy consumption for commercial and and manufacturers. Moreover, we are actively cultivating industrial customers to conserve energy and reduce run- demand along the Himeji-Okayama Line, scheduled to com- ning costs. In the year under review, the cumulative plete in 2014, to expand our geographic market reach. number of sites installed with this system grew to 1,008

Eco Wave Contracts (Cumulative Total) Eneflex Service Locations (Cumulative Total)

1,000 1,200 841 862 815 1,008 800 693 900 805 625

600

600 465 400 289 300 200 25 0 07.3 08.3 09.3 10.3 11.3 0 07.3 08.3 09.3 10.3 11.3

OSAKA GAS Annual Report 2011 31 Osaka Gas Group’s Businesses

Domestic Energy Businesses

Electric Power Business

Business Characteristics and Strengths the same space and infrastructure. Throughout the year The electric power business is an integral part of the multi- under review, all four turbines operated without major energy service business of Osaka Gas. It is a business line problems. The power business contributed significantly to leveraging the Group’s infrastructure, solution-based mar- the Company’s profits mainly due to a spike in electricity keting techniques and customer network nurtured in the demand caused by an unusually hot summer last year. Company’s core gas operations. The business consists of three domains: IPP, power generation, and power market- Future Business Development ing. In an effort to contribute to environmental conservation, With the view to grow the power business into an earnings Osaka Gas is actively engaged in carbon-­emission-free wind driver second to the gas business, we maintain the stable power generation in addition to gas-fired thermal power operation of the Semboku Natural Gas Power Plant. Mean- generation. In power marketing, we sell our electricity while, we ensure our business risks are hedged with a bal- through our retail affiliate ENNET Corporation, and whole- anced sales portfolio including both retail and wholesale of sale power to Japan Electric Power Exchange (JEPX) to electricity. In our long-term commitment to deal with the establish a well-balanced marketing portfolio. Domestic growing importance of global environmental concerns, we power generation capacity of the electric power business is continue to expand our horizons beyond gas-fired thermal currently around 1.8GW, centered on the 1.1GW capacity of generation, to construction and acquisition of wind, solar the Semboku Natural Gas Power Plant that commenced and other renewable power generation facilities, as well as operations in 2009. M&A opportunities of IPP business. Leveraging our ability to coordinate and deliver the best energy mix of gas and electric- The Semboku Plant in Stable Operation ity to meet customers’ demand, we continue our endeavors The Semboku Natural Gas Power Plant, operational since to become a more reliable multi-energy service provider. 2009, is a cutting-edge, highly efficient gas turbine ­combined-cycle power plant generating electricity from environmentally friendly natural gas. All four gas turbines at the plant were constructed within the Company’s Semboku LNG Terminal to achieve enhanced competitiveness with lower cost and synergies with the gas business, which shares

Power Sources Owned by Osaka Gas Group (as of June 2011)

Power plant Capacity Torishima Energy Center 150 MW Nakayama Joint Power Generation 149 MW Nakayama Nagoya Joint Power Generation 149 MW Himeji Power Plant 55 MW Domestic Semboku Natural Gas Power Plant 1,109 MW power source Hayama Wind Farm 20 MW Hirogawa Myojin-yama Wind Power Plant 16 MW Yura Wind Power Plant 10 MW Other 115 MW Total 1,773 MW In addition to the above, 1.4GW (Group stake) is sourced abroad. Semboku Natural Gas Power Plant (Osaka) For further information, please refer to pages 34 and 35.

32 OSAKA GAS Annual Report 2011 LPG and Industrial Gas Businesses

Business Characteristics and Strengths of its natural gas business while maintaining a stable supply Advantage of the Group’s Network in LPG of industrial gas to its customers. The Osaka Gas Group’s LPG business is mainly to serve customers outside the natural gas service area by providing Future Business Development retail and wholesale supplies of Liquid Petroleum Gas (LPG). The Osaka Gas Group will enhance quality and efficiency to The Company takes full advantage of its nationwide net- strengthen its LPG business. Furthermore, we will enrich work, as well as its knowledge and experience of the natu- multi-energy services including the industrial gas business. ral gas business, to enhance its competitiveness in LPG. The LPG business constitutes multi-energy services of LPG Business Locations Osaka Gas in combination with natural gas and electricity supplies for both household and industrial users. Toko Sangyo Nissho Propane Sekiyu Homma Nenryoten Nissei Cryogenic Energy Business and Industrial Gas Business Liquid Gas Kyoto Utilizing the cryogenic energy of LNG, Osaka Gas is involved Osaka Gas LPG Nagano Propane Gas in businesses such as air separation, manufacturing and Liquid Gas Nissho Gas Supply marketing of liquefied carbon dioxide and dry ice, high-purity Nissho Petroleum Gas Osaka Gas Group’s Businesses methane, and on-site supplies of hydrogen from a hydrogen Heart Net Higashi Kanto producer “HYSERVE.” Additionally, in this growing business area of ours, we are expanding business using proprietary Tokai Nissho Gas Daiya Nensho technology in low-temperature crushing.

In the fiscal year under review, Osaka Gas further expanded Kochi Nissho Propane its customer base in this field using the marketing know-how Ehime Nissho Propane Enes Carry

Broad-Area Energy Business

Business Characteristics and Strengths Future Business Development The Osaka Gas Group does not merely supply natural gas to Osaka Gas will expand the volume of LNG it trades to customers inside the service area. The Group also sells part enhance its competitiveness in procuring LNG. At the same of the LNG that it procures to large-scale customers outside time, it will provide a variety of energy solutions while forming its service area, and to other utilities, by transporting the business alliances with other utilities. gas by truck, train or ship. In addition to the LNG already being supplied to Nippon Gas Co., Ltd. by LNG tanker, the Group is scheduled to begin providing LNG to Okinawa Electric Power Company, Inc. in the fiscal year ending March 2013, and to Shizuoka Gas Co., Ltd., in the fiscal year ending March 2015.

OSAKA GAS Annual Report 2011 33 Osaka Gas Group’s Businesses

International Energy Businesses Along the Energy Value Chain

The Group is expanding its business globally in areas including resource development, LNG termi- nals, pipelines and IPP.

Business Overview In the field of international energy business along the energy value chain the Osaka Gas Group strives for stable and flexible procurement of highly competitive supplies of LNG, and builds up a natural gas value chain that extends from upstream to mid- and downstream businesses. By participating in natural gas projects, we intend to secure profitability as well as to maximize synergies among projects by utilizing knowledge, expertise and networks cultivated through the LNG procurement business. In addition to pushing ahead with the development of our natural gas fields, oil fields and other energy resources in the upstream area, we also promote the development of mid- and downstream operations in LNG terminals, pipelines, gas dis- tribution and IPP projects. In the future, we plan to leverage our LNG terminals and LNG carriers to develop a global operation with a view to enter the global energy trading business.

Investments in International Energy Businesses Along the Energy Value Chain

1

1Idemitsu Snorre Oil ­Development Co., Ltd. (North Sea Oil Field) 5Qalhat LNG Terminal • Stake since 2005: 49.49% 2 • Stake since 2006: 3% • Estimated reserves: 90 million boe* • Liquefaction capacity: 3.3 million (crude, etc.) 3 tons/year *boe: Barrels of Oil Equivalent

4 5

2Amorebieta IPP • Stake since 2005: 50% • Power generation capacity: 378 MW (Group stake)

(Image)

4Shuweihat S2 IWPP 6Gorgon Project Gas Field • Stake in 2011: 10% • Stake since 2009: 1.25% 3Sagunto LNG Terminal (25% equity interest in the operation • Projected output: 15 million tons/year • Stake since 2010: 20% and maintenance company) (Start of production scheduled for 2014) • Vaporization capacity: 6.4 million • Power generation capacity: 150 MW • Estimated reserves: 800 million tons tons/year • Fresh water processing capacity: 10 natural gas (LNG equivalent) million gallons/day Operations scheduled to commence in the fall of 2011 34 OSAKA GAS Annual Report 2011 Operating Revenues Segment Income (Billions of yen) (Billions of yen) 15.0 6.0 4.9 International Energy Businesses Along the Energy Value Chain 11.1 11.1 5.0 4.2 10.0 4.0

3.0

5.0 2.0

1.0

0 10.3 11.3 0 10.3 11.3

7Universe Gas & Oil Company, eIPPs in USA (including Guam) =Shale Gas Development Project Inc. (Sanga Sanga Gas Field) • Stake since 2005 • Stake in 2011: 7.5% • Stake since 1990 • 8 IPP projects • Estimated reserves: About 100 to 160 • 4.375% stake in mining concession • Power generation capacity: 447 MW million LNG-equivalent tons of natural gas (Group stake)

（Image） 8Crux Condensate Field

• Stake since 2007: 15% Osaka Gas Group’s Businesses • Estimated reserves: Approx. 60 million bbl condensate =

（Image） e 9Sunrise Gas Field • Stake since 2000: 10% • Estimated reserves: 110 million tons natural gas w (LNG equivalent) Approx. 230 million bbl condensate q

7 0EII wTenaska Gateway IPP • Stake since 2008: 30.2% • Stake since 2004: 40% • Four pipelines, two gas-refining • Power generation capacity: 338 MW 9 facilities, two power plants, two (Group stake) 8 interconnected power lines 6 0

-

-Hallett 4 Wind Farm Project qFreeport LNG Terminal • Stake since 2009: 39.9% • Stake since 2008: 10% • Power generation capacity: 52 MW • Vaporization capacity: 13 million tons/year (Group stake) Photo provided by: Freeport LNG Development L.P.

OSAKA GAS Annual Report 2011 35 Osaka Gas Group’s Businesses

International Energy Businesses Along the Energy Value Chain

Upstream Business Mid- and Downstream Businesses (Resource Development Business) The Osaka Gas Group has been aggressively seizing oppor- Our upstream business activities have the primary goal of tunities for equity participation in various overseas energy securing a flexible and stable supply of LNG for the domes- projects including LNG terminals, pipelines and IPP busi- tic gas business. The upstream businesses we have partici- nesses. Our primary goals in this business field are to pated in have not only contributed substantially to the establish energy businesses which Osaka Gas operates expansion of the Group’s earnings, but also to the stabilization with its energy business know-how and to further increase of those earnings in times of surging crude oil prices. revenue stability for the entire Group. Looking into the future, we will continue working for the We will further expand these businesses and examine early commercialization of our overseas energy projects, new interest opportunities in gas distribution businesses. and acquiring new high-quality assets. By the year 2020, we plan to increase the LNG equity holdings that allow us to Water and Power Project in the UAE sell the resource in proportion to our interest percentage up In March 2011, Osaka Gas reached an agreement for acquir- to 15% of the entire LNG traded by the Group. With this strat- ing equity in the Shuweihat S2 Independent Water and Power egy, we intend to improve the flexibility and stability of our Project now under construction in Abu Dhabi, in the United LNG procurement with the aim of participating in the world Arab Emirates (UAE). In this project, Osaka Gas holds the LNG markets in the future. shares of a business company and an operation and mainte- nance company for the project originally invested by Shale Gas Development Project in Canada ­ Corporation. Osaka Gas expects long-term and In May 2011, Osaka Gas decided to participate in a shale stable earnings from the project, which is scheduled to enter gas development project in Canada. Shale gas has become a 25-year contract for selling water and power once com- available as a natural gas resource thanks to technological mercial operation commences in the fall of 2011. innovations in recent years which have reduced the cost of natural gas production in comparison to conventional sources. LNG Terminal Project in Spain Shale gas is a new type of resource that has gained growing In December 2010, Osaka Gas invested in the Sagunto LNG attention around the world for its vast reserves. Also within terminal in Spain. This marked the Company’s second invest- scope is a feasibility study we are conducting with our ment in an overseas LNG terminal, following the Freeport partners for the potential future export of shale gas in the LNG terminal in the U.S. The Company’s policy in overseas form of LNG to Japan. LNG terminal operations is to acquire equity in LNG terminals that are located near the LNG consumption areas of industri- alized nations, with the aim of developing trading businesses that will function in tandem with upstream businesses.

Global Natural Gas Production LNG Purchase Volumes by Osaka Gas

(Billion m3) (Thousand tons)

4,000 10,000

3,062 3,193 7,342 7,479 7,679 2,881 2,951 2,976 8,000 7,311 3,000 6,752

6,000

2,000

4,000

1,000 2,000

0 2006 2007 2008 2009 2010 0 07.3 08.3 09.3 10.3 11.3 Brunei Australia Qatar Other Source: BP “Statistical Review of World Energy 2011” Indonesia Malaysia Oman

36 OSAKA GAS Annual Report 2011 Wind Farm Project in Australia LNG Transportation In Australia, Osaka Gas, along with the APA Group, a major Having our own LNG transportation capability not only reduces Australian energy company, and Marubeni Corporation, built LNG shipping costs but also expands business opportunities “­Hallett 4,” a wind farm, which commenced operation in in vessel leasing, LNG trading and other activities. In line with June 2011. the Company’s procurement policy, we will examine the pos- sibility of enlarging our fleet of LNG carriers. Procurement of Energy Resources Diversification of LNG Procurement LNG vessels utilized by Osaka Gas The LNG the Osaka Gas Group businesses currently use is entirely imported from abroad. Due to the expansion of global energy demand driven by emerging nations, and the changes in energy market conditions accompanying eco- nomic fluctuations, securing a long-term stable LNG supply became a key issue for the Group’s management. In the LNG Flora LNG Vesta fiscal year ended March 31, 2011, we procured LNG under long-term contracts from six countries: from Indonesia, Brunei, Malaysia, Australia, Qatar and Oman. In addition, we have plans to begin procurement from Russia in the year ending March 2012, and from Papua New Guinea by the end of 2013. The year ending March 2013 will also mark the ©2005 JIMMY ONISHI commencement of LNG procurement through the portfolio LNG Jamal LNG DREAM supply of the Group. In our LNG procure- ment policy, we are focused primarily on long-term con- tracts, but they are combined with mid- and short-term Osaka Gas Group’s Businesses arrangements for improving supply flexibility to deal with demand fluctuation.

LNG BARKA LNG JUPITER

Major Nations with Natural Gas Reserves and Suppliers to Osaka Gas

Norway 2.0 Russia 44.8 Canada 1.7 Qatar Turkmenistan China Algeria 8.0 4.5 25.3 2.8 U.S.A. Iran 7.7 Egypt 29.6 2.2 Saudi Arabia 8.0 Oman UAE 0.7 Malaysia 6.0 Venezuela Nigeria 2.4 Brunei 5.5 5.3 0.3 Papua New Guinea Indonesia 0.4 3.1

Major nations with natural gas reserves Australia (Trillion m3) 2.9 Countries where Osaka Gas signed long-term contracts Source: BP “Statistical Review of World Energy 2011”

OSAKA GAS Annual Report 2011 37 Osaka Gas Group’s Businesses

Environment and Non-Energy Businesses

The Group is drawing upon its technical expertise and eyeing business development in the ­environmental field—especially real estate, IT, and advanced materials—to deepen and expand its business.

Real Estate Business (Urbanex Group) IT Business (OGIS-RI Group) Business Characteristics and Strengths Business Characteristics and Strengths In the real estate business field, Osaka Gas Group subsidiaries Having started with system development for its own gas opera- and affiliates develop, lease and sell office buildings, housing and tions, the Group’s IT businesses offer a wide range of services to other properties by utilizing the existing real estate assets and customers in the manufacturing, finance and distribution fields newly acquired prime assets of the Company. At the same time, including design, consulting, development, operation and mainte- the Group operates a research park in Kyoto, as a collaboration nance of IT systems. The Group also offers some of the most base for the private, academic and public sectors in creating new advanced technology in the country related to Model Base Devel- industries. We are also engaged in efficient management and opment using the effective Unified Modeling Language (UML) to maintenance of office buildings, hospitals, commercial facilities, develop efficient systems. hotels, and schools and other facilities, with the aim of energy conservation and the reduction of CO2 emissions. Fiscal 2011/3 Overview and Future Initiatives Amid a stagnant economic environment, Group businesses in the Fiscal 2011/3 Overview and Future Initiatives IT domain managed to maintain the same level of net sales as the In the real estate leasing business, the fiscal year under review saw previous year’s in the year ended March 31, 2011. By contrast, an increase in earnings attributed to operations commencing at one profits of IT businesses decreased due to downward pressure on new office building and two new residential assets, along with a unit prices and other factors. Going forward, the Osaka Gas rise in occupancy rates of the Osaka Gas Group real estate assets. Group’s IT businesses will continue to offer a solution menu In condominium sales, our swift sell-out strategy succeeded and including Cloud Integration for bringing network systems and contributed to a major increase in revenue. This was achieved customer systems together, “virtual hosting” and “Business against a market backdrop in which recovery had remained out of Guru Map,” among other services. At the same time, the IT seg- sight for all but the most convenient downtown condominiums. ment aims to become a total solution provider by accelerating We will continue to acquire prime pieces of real estate and expand BTO (built to order) system development*1 which achieves cus- business. Furthermore, we will generate synergies with the energy tomization for costs at mass production level, and Agile system*2 businesses of the Company by marketing properties equipped with the which responds quickly to customers’ requests. latest models of gas appli- Notes: ances including “Mist *1. BTO (build to order) system development: An approach that makes use of Sauna,” gas stoves with semi-finished products to apply the business models used in hardware glass tops and floor heat- manufacturing to software development in order to enable the production of individual products for individual customers at costs as low as those for ing, to name but a few. mass production. Through these tactics, we *2. Agile system development: In this approach systems are divided into small and aim to be one of the Kansai quickly completed units, each in accordance with their component functions. region’s top integrated real A system is built up in stages with the phased completion of the units. This approach offers customers the advantage of performing test runs of the soft- estate groups. ware right from the beginning, at each stage along its development. Kyoto Research Park No. 9

Operating Revenues and Net Income Operating Revenues and Net Income of The Urbanex Group of The OGIS-RI Group

(Millions of yen) (Millions of yen) (Millions of yen) (Millions of yen) 50,000 46,533 5,000 80,000 8,000

40,000 3,718 3,604 4,000 57,201 3,541 35,152 34,696 60,000 52,147 52,460 6,000 30,067 30,000 26,930 3,000 2,417 36,302 40,000 34,322 4,000 3,060 20,000 1,693 2,000 2,541 2,259 1,818 20,000 1,543 2,000 10,000 1,000

0 07.3 08.3 09.3 10.3 11.3 0 0 07.3 08.3 09.3 10.3 11.3 0

Operating revenues (left scale) Net income (right scale) Operating revenues (left scale) Net income (right scale)

38 OSAKA GAS Annual Report 2011 Operating Revenues Segment Income (Billions of yen) (Billions of yen) 250 20 185.4 15.6 Environment and Non-Energy Businesses 200 175.6 14.0 15 150 10 100 5 50

0 10.3 11.3 0 10.3 11.3

Advanced Materials Business Service-Related Businesses (Osaka Gas Chemicals Group) Business Characteristics and Strengths Business Characteristics and Strengths The Group is involved in a wide array of service-related business This business domain draws on the accumulated coal chemical fields, including a research and consulting business using scien- technology of Osaka Gas to operate a variety of businesses tific methods of human behavior observation to contribute to ranging in application from electronics to the environment. In productivity improvements in the service industry workplace, the fine materials field, the group manufactures and sells fluo- facilities operation of the COSPA and other sports centers, leas- rine derivatives with excellent optical properties and outstand- ing of cars and various equipment, facilities management, tempo- ing heat resistance. Those derivatives are used as materials in rary staffing, a for-profit retirement home, and wedding services. fabricating LCD films and camera lenses in mobile phones. These businesses help raise the brand value of the Osaka Gas Products manufactured and marketed in the carbon materials Group and contribute to efficient Group operations. field include molded carbon-fiber insulation for use in fusion furnaces that process polysilicon for use in photovoltaic cells, Fiscal 2011/3 Overview and Future Initiatives activated charcoal for various applications, household environ- In February 2011, one of our Group companies, Osaka Gas mental products using activated charcoal such as water purifier Business Create Co., Ltd., acquired all shares in Hohoemie Co., Ltd. cartridges and air purifying filters, and preservatives including a (currently Osaka Gas Excellent Agency Co., Ltd.), a temporary widely recognized brand of wood protective paints. staffing agency specializing in technically-trained personnel, for conversion into a wholly owned subsidiary. Osaka Gas Business Create acquired Hohoemie in response to the varying human

Fiscal 2011/3 Overview and Future Initiatives Osaka Gas Group’s Businesses In the year ended March 31, 2011, the chemicals businesses of resource needs of its customers, with the aim of bolstering its the Osaka Gas Group reported earnings roughly on par with the capacity as a business support company. In other areas, the previous fiscal year, thanks to earnings growth in preservatives. Osaka Gas Human Behavior Observation Research Center and This was achieved against an increasingly uncertain business L-NET CO., LTD. led PR activities aimed at raising the social environment in which competition intensified even as the econ- awareness of businesses in human behavior observation. omy remained sluggish. Going forward, the Group will expand Improving the response to customers’ needs, the Group compa- sales channels and develop new applications in a variety of nies in the service-related area will continue to develop busi- fields, including fine materials, carbon materials, household nesses to hedge the risks of the gas operations while searching environmental products, activated carbon fiber, and preserva- for growth opportunities. tives. At the same time, the Group will leverage its advancing technologies in order to achieve business expansion, including the development of negative-electrode material with the aim of entering the rapidly expanding market for lithium-ion recharge- able batteries. The Group, moreover, will aim to grow as a “­Sustainable Value Creator” to bring the best products and solu- tions to its customers to maximize value.

Operating Revenues and Net Income of The Osaka Gas Chemicals Group

(Millions of yen) (Millions of yen) 40,000 4,000 33,308 33,075 31,262 32,263 32,374

30,000 3,000 Operation of sports facilities Wedding service business OG Sports Co., Ltd. Planetwork Co., Ltd.

20,000 2,000 1,547 1,504 1,364 1,501

10,000 777 1,000

0 07.3 08.3 09.3 10.3 11.3 0

Operating revenues (left scale) Net income (right scale)

OSAKA GAS Annual Report 2011 39